Life insurance is a contract between an individual and an insurance company wherein the latter agrees to pay a certain amount of money to the former in case of the former’s demise. It is basically a simple way to help your family meet their financial needs even in your absence.
An untimely death of a family’s main breadwinner could cause a great deal of damage to the people who are dependent on him. They might struggle to meet their day to day expenses and might find it hard to make both ends meet. This is why a life insurance policy becomes so important for people who have a family to look after. If you have a comprehensive insurance policy, you can rest assured that your family’s financial needs will be taken care of by the insurance company even in your absence. This ‘peace of mind’ factor plays a vital role in people choosing their insurance policies.
There are two important types of life insurance policies – protection policies and investment policies. Protection policies typically pay a lump sum at the time of the policyholder’s death. A good example of this type of policy is term insurance policies. Investment policies, on the other hand, accumulate cash value and the capital keeps growing throughout the policy term. Some examples of this type of policy include whole life, universal life, and variable universal life policies.
Contrary to what most people think, these types of insurance policies are not just about death benefits. Insurance companies will pay you even in case of a terminal illness, critical illness, or death caused due to an accident. Since these are not built-in benefits, you need to add terminal illness benefits, critical illness benefits, and accidental death benefits to your insurance policy in the form of riders. If you add all these riders, the premium of your insurance policy might increase to a considerable extent.
When it comes to buying this type of insurance, the golden rule you need to follow is ‘the sooner, the better’. When you are young and healthy, you can buy a comprehensive life cover and pay a small premium. When you are old and ailing, you might have to pay a fortune to buy the same life cover. So, the right time to buy life cover is when you are young.
You should make sure you buy enough term coverage to meet your needs. There is a simple way to calculate how much coverage you need. Ask yourself this question – how much money would my family need to be able to maintain their current lifestyle in my absence? The answer to that question should give you a good idea as to how much term coverage you need to buy.
You need to remember that your lifestyle plays a vital role in deciding how much you pay for your life cover. If you smoke, drink, do drugs, or if you are morbidly obese, you might have to pay a large amount for getting life cover. So, it is a good idea to quit bad habits and get in shape.
Last but not least – shop around. Get in touch with different companies, talk to insurance advisors, check out various online sources, and choose the right life insurance policy for you.